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Japanese Yen holds steady ahead of Trump–Xi summit, US Retail Sales data

  • USD/JPY flat lines around 157.85 in Thursday’s early Asian session. 
  • US inflation came in hotter than expected, with the PPI rising by 6.0% YoY in April. 
  • Trump will hold a high-stakes meeting with Xi Jinping in China. 

The USD/JPY pair trades on a flat note near 157.85 during the early Asian session on Thursday. The major pair steadies as traders prefer to wait on the sidelines ahead of the US President Donald Trump-Chinese President Xi Jinping summit in Beijing and the release of the US April Retail Sales data later on Thursday. 

The latest US inflation data came in hotter than expected, fueling expectations that the US Federal Reserve (Fed) will maintain elevated long-term interest rates. This, in turn, could underpin the US Dollar (USD) against the Japanese Yen (JPY). 

The US Producer Price Index (PPI) jumped 6.0% YoY in April, following the 4.3% seen in March, according to the US Bureau of Labor Statistics on Wednesday. On a monthly basis, the PPI inflation rose to 1.4% in April from 0.7% in March and much higher than the estimate of 0.5%.

Bloomberg reported on Wednesday that Trump arrived in Beijing for a state visit to China, where he will meet with Xi Jinping to discuss topics including trade and the Iran war. This is the first state visit to China by a US leader in nine years. 

Nonetheless, the potential upside for the pair might be limited amid fears of further currency intervention from Japanese authorities. Japan’s Finance Minister Satsuki Katayama said last week that “regarding recent currency moves, we confirmed that Japan and the US have been coordinating very well and have maintained close communication.” 

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EUR moves little against JPY as risk aversion increases

  • EUR/JPY remains steady as the Euro declines, offsetting Yen weakness.
  • The OECD projects the Bank of Japan will increase short-term policy rates to 2% by the end of 2027.
  • Bundesbank President Joachim Nagel warned that rising energy costs make an ECB interest rate hike increasingly likely.

EUR/JPY remains flat after registering modest losses in the previous day, trading around 185.00 during the Asian hours on Wednesday. The currency cross remains stable as the Euro’s (EUR) decline is driven by a wave of risk aversion following faded hopes for Middle East peace, which effectively offsets Japanese Yen (JPY) weakness.

However, the Japanese Yen may gain ground against its major peers as the Bank of Japan’s April Summary of Opinions revealed that policymakers are considering further rate hikes as early as their next meeting, driven largely by inflation risks linked to rising oil prices.

The Organisation for Economic Co-operation and Development (OECD) has recommended that Japan primarily utilize consumption tax increases to bolster its national revenue. On the monetary front, the Bank of Japan (BOJ) is projected to raise short-term policy rates to 2% by the end of 2027, though it must remain flexible enough to modify the pace and maturity of its bond-buying activities should financial or bond market disruptions occur.

The Euro may also receive support from a hawkish tone surrounding the European Central Bank (ECB) policy outlook. Bundesbank President Joachim Nagel said on Wednesday that the probability that the central bank will need to raise borrowing costs due to the Iran war is rising. Meanwhile, ECB Governing Council member Martin Kocher said on Monday that there’s no need to delay the interest rate hikes if energy prices don’t improve swiftly.

On the data front, Japan’s current account surplus increased to JPY 4,681.5 billion in March from JPY 3,625.3 billion in the same month a year earlier. These figures surpassed market expectations of JPY 3,879 billion, marking the largest amount on record. Traders now await the Eurozone quarterly Gross Domestic Product (GDP) and Employment Change data for the first quarter of 2026 due later in the day.

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EUR gains against the JPY following Japan’s Household Spending data

  • EUR/JPY rises as the Japanese Yen weakens following disappointing Japanese household spending data and shrinking consumer demand.
  • The BoJ Summary shows some members favor rate hikes while others urge caution regarding Middle East instability.
  • The Euro gains ground as hawkish ECB rhetoric fuels expectations for continued interest rate hikes through June.

EUR/JPY extends its gains for the fourth successive day, trading around 185.40 during the Asian hours on Tuesday. The currency cross appreciates as the Japanese Yen (JPY) struggles following the disappointing release of Japan’s Household Spending data.

Japan’s economic outlook faced renewed pressure on Tuesday after the internal affairs ministry reported a significant 2.9% year-over-year drop in consumer spending for March. This steeper-than-expected decline marks the fourth consecutive month of shrinking personal expenditures, as persistent inflationary pressures continue to erode household purchasing power. The data underscores a fragile domestic recovery, further complicated by growing global economic anxiety stemming from the escalating tensions between the United States and Iran.

Inside the Bank of Japan (BoJ), policymakers appear to be navigating a complex path toward normalization. The Summary of Opinions from the April meeting revealed that while some members believe real interest rates are low enough to support further hikes, others remain wary of the unpredictable Middle East situation. Despite these geopolitical uncertainties, the consensus suggests that a rate hike remains likely as early as the next meeting. This hawkish tilt was complemented by diplomatic efforts, as Finance Minister Satsuki Katayama reaffirmed close cooperation on currency stability with US Treasury Secretary Scott Bessent.

Meanwhile, the EUR/JPY cross continues to gain traction, bolstered by a resilient Euro (EUR) and a decisively hawkish European Central Bank (ECB). Governing Council member Martin Kocher emphasized that the bank will not hesitate to push forward with interest rate hikes if energy prices remain elevated. With financial markets now pricing in a 92% probability of a rate hike in June and anticipating three total increases by 2026, the widening policy divergence between the ECB and the BoJ is providing a steady tailwind for the pair.

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Japan’s Katayama: US and Japan affirm close cooperation on currency moves

Japan’s Finance Minister Satsuki Katayama said that Japan and the United States (US) reaffirmed their ‌close cooperation on currency moves after a meeting with US Treasury Secretary Scott Bessent, Reuters reported on Tuesday.

Key quotes

Reaffirmed close cooperation on joint statement from last year. 

Discussed wide global cooperation on crucial mineral supply chains. 

Two countries in close contact, will continue to coordinate closely with Bessent. 

Will not discuss BoJ’s particular monetary policy tools. 

China may close gap in high-tech sectors within six months to a year, but not currently. 

Trust us, Japan is aligned in managing critical mineral supply chain. 

Discussions on currency coordination with US have intensified. 

No talks with Bessent on Tokyo’s fiscal policy. 

Unable to disclose if monetary policy talks occurred. 

Comfortable with economic panel suggestion that BoJ consider firms’ financing circumstances. 

We have not yet stepped into oil futures market. 

Hard to forecast June outlook, declines to comment on possibility of BoJ rate hike in June. 

Market reaction

As of writing, the USD/JPY pair is up 0.22% on the day at 157.50.

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Japanese Yen drifts lower vs USD as weak Household Spending data counters hawkish BoJ

  • USD/JPY edges higher as Japan’s disappointing consumer spending data weighs on the JPY.
  • Rising US-Iran tensions underpin the safe-haven USD and also lend support to spot prices.
  • The divergent BoJ-Fed expectations might cap the pair as traders await the US CPI report.

The USD/JPY pair attracts some buyers for the second straight day and advances to a four-day high following the disappointing release of Japan’s Household Spending data this Tuesday. Spot prices, however, lack bullish conviction amid mixed fundamental cues and currently trade just below the mid-157.00s area, up 0.15% for the day.

Japan’s internal affairs ministry reported earlier today that consumer spending fell 2.9% YoY in March, compared to a 1.8% drop in the prior month and missing market estimates. This also marks the fourth consecutive month of decline in personal spending amid persistent inflationary pressure and comes on top of economic concerns stemming from rising US-Iran tensions, which, in turn, undermines the Japanese Yen (JPY). Apart from this, a modest US Dollar (USD) uptick acts as a tailwind for the USD/JPY pair.

The recent optimism over a potential US-Iran peace deal faded rather quickly amid major disagreements over Tehran’s nuclear program and a standoff over the critical Strait of Hormuz. Furthermore, US President Donald Trump said that the ongoing US-Iran ceasefire was “unbelievably weak” and was on “massive life support.” This keeps geopolitical risks in play and underpins the USD’s reserve currency status. The USD bulls, however, opt to wait for the release of the US consumer inflation figures later today.

The crucial data will play a key role in influencing market expectations about the US Federal Reserve’s (Fed) policy outlook and provide some meaningful impetus to the USD. In the meantime, traders have been scaling back their bets for a Fed rate hike in 2026, which marks a significant divergence in comparison to the BoJ’s relatively hawkish outlook. In fact, BoJ’s Summary of Opinions from the April meeting left the door open for an imminent rate hike. This might further contribute to capping the USD/JPY pair.

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BoJ Summary of Opinions: Member says bank may need to tackle risk of rising price deviations

The Bank of Japan (BoJ) published the Summary of Opinions from the April monetary policy meeting, with the key findings noted below.   

Key quotes

One member states real interest rates low enough to support further policy rate hikes. 

BOJ member says bank may need to tackle risk of rising price deviations. 

One member said impact of Middle East situation hard to predict, bank to take wait-and-see stance at meeting. 

One member said a policy rate increase focused on controlling inflation is likely to harm economic progress at this stage. 

Rate hike likely from next meeting despite uncertain Middle East outlook. 

One BoJ member signals no rush to act now but favors rate hike soon barring clear economic slowdown. 

One member says Japan’s real policy interest rate is by far the lowest globally, BoJ must continue adjusting negative real rate ahead of second-round effects. One member said BoJ must prevent significant risk of inflation rising sharply in conducting monetary policy. 

One member said policy rate remains below neutral, so BOJ must keep raising rates every few months. 

One member said if upside risks to prices rise, BoJ must speed up rate hikes without delay. 

One member said prolonged Middle East tensions could prompt earlier policy rate increase to neutral level.

One member said Middle East situation remains uncertain, all scenarios indicate greater upside risks to price .

One member warns supply-side constraints could cause sharp price surges. 

Market reaction  

Following the BoJ’s Summary of Opinions, the USD/JPY pair is up 0.36% on the day to trade at 157.25 as of writing. 

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Australian Dollar strengthens against Japanese Yen on hawkish RBA path

  • AUD/JPY trades with mild gains around 113.60 in Monday’s early European session. 
  • Market pricing indicates the OCR could reach 4.7% by the end of 2026, with no cuts expected until 2028. 
  • Japan’s officials intervened in the FX market during the holidays in early May. 

The AUD/JPY cross posts modest gains near 113.60 during the early European trading hours on Monday. The Australian Dollar (AUD) edges higher against the Japanese Yen (JPY) on a hawkish tone from the Reserve Bank of Australia (RBA). Nonetheless, traders remain cautious of potential further interventions from the Japanese authorities. 

The Australian central bank raised its Official Cash Rate (OCR) to 4.35% last week, matching its December 2024 peak, as inflation remains elevated. This marks the third consecutive rate hike this year. According to the statement, the RBA said inflation had picked up materially in the second half of 2025, with conflict in the Middle East pushing up fuel and commodity prices. 

The RBA signaled that more rate hikes were on the horizon, with its economic forecasts pencilling in a 4.70% policy rate by the end of 2026, with no cuts expected until 2028, according to CNBC.

However, the potential upside for the cross might be limited amid intervention fears. Japanese officials reportedly intervened in the currency market again during the Golden week. 

Markets estimated the cost of these additional moves at approximately ¥4 trillion to ¥5 trillion ($32 billion). Japan’s top foreign exchange official, Atsushi Mimura, said last week that continued intervention was possible.

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JPY – lower vs firmer USD on Iran tensions; intervention risks limit losses

  • USD/JPY attracts some dip-buyers as Iran tensions and hawkish Fed bets revive the USD demand.
  • Reviving inflationary concerns act as a tailwind for the US bond yields, also underpinning the USD.
  • Intervention fears and expectations for a BoJ rate hike in June should help limit deeper JPY losses.

The USD/JPY pair reverses a modest Asian session dip to the 156.50-156.45 area on Monday as the safe-haven US Dollar (USD) draws support from persistent geopolitical uncertainties. Spot prices reclaim the 157.00 mark, though any meaningful upside still seems elusive in the wake of speculations that Japanese authorities might step in to prop up the domestic currency.

US President Donald Trump and Iran both rejected each other’s peace proposals for ending the war and the gradual reopening of the Strait of Hormuz amid major disagreements over Iran’s nuclear program. In fact, the Wall Street Journal reported that Iran has rejected US demands to dismantle its nuclear facilities and suspend uranium enrichment for 20 years. US President Donald Trump quickly lashed out at the Iranian response, calling it “totally unacceptable.” This comes on top of renewed hostilities in the Strait of Hormuz and keeps geopolitical risks in play, underpinning the USD’s reserve currency status and offering some support to the USD/JPY pair.

Meanwhile, the US-Iran standoff triggers a fresh leg up in Crude Oil prices and revives inflationary concerns. Apart from this, the upbeat US Nonfarm Payrolls (NFP) report released on Friday reaffirms hawkish US Federal Reserve (Fed) expectations and acts as a tailwind for the US Treasury bond yields. This turns out to be another factor benefiting the USD and contributing to the bid tone surrounding the USD/JPY pair. Meanwhile, reports last week that officials intervened in the FX market during holidays in early May might hold back traders from placing aggressive bearish bets around the Japanese Yen (JPY) and cap further gains for the currency pair.

Moreover, Japan’s top currency diplomat, Atsushi Mimura, had said on Thursday that Japan faces no constraints on how often it can intervene on currency markets and is in daily contact with US authorities. This reinforces that Japan remains committed to stemming speculative JPY moves. Adding to this, the Bank of Japan’s (BoJ) upward revision of inflation forecasts and the 6-3 hawkish vote split lifted bets for a potential rate increase as soon as June. This favors the JPY bulls, warranting caution before positioning for further USD/JPY gains